Life coverage companies have got written to the finance ministry seeking lucidity on the proposal to taxation the monetary fund direction services for Unit Of Measurement Linked Insurance Plans (Ulips).

In his Budget speech, Finance Curate Phosphorus Chidambaram had announced the determination to convey monetary fund direction service provided for Ulips under the service taxation net.

However, the Finance Bill states otherwise — it said service taxation would be applied not just on the monetary fund direction complaints (FMC) but also on the insurance premium allotments charges, policy disposal and miscellaneous complaints too.

Life Insurance Council (self-regulatory body of life insurers) have written to the ministry request for lucidity and have also sought for Insurance Regulatory and Development Authority's (IRDA) support on this matter. Insurance functionaries have got demanded that insurance premium allotment complaints in Ulips should be exempt from service tax.

BONE OF CONTENTIONFinance ministry and insurance companies differ over service taxation on Ulips

Illustration according to the Finance Bill

Illustration according to insurers

* Entire insurance insurance premium paid for the = Rs 100Ulip policy

* Entire premium paid for = Rs 100 the Ulip policy

* Hazard insurance insurance premium = Rs 10

* Hazard premium = Rs 10

* Amount actually invested = Rs 85

* Amount actually invested = Rs 85

* Gross amount charged for = Rs 5 the service provided [100-(10+85)]

* Gross amount charged for the service provided = FMC (varies from 0.8% to 2%) on the income generated on Rs 85

* Therefore, service taxation applicable on Rs 5 + FMC on income generated on Rs 85

* Therefore, service taxation applicable on Rs 5 + FMC on income generated on Rs 85

Says the chief executive officer of an coverage company, "The Finance Bill illustration is incorrect. It said that the service taxation will be on the difference between the insurance premium invested and the mortality complaints plus the invested portion. On the remaining amount, there will be service tax, which conveys insurance premium allotment complaints also under service tax."

"There is a 6 per cent initial direction complaints on open-ended common funds, which is not taxable. For MFs, the service taxation is applied only on the monetary fund direction complaints and not on entry loading and issue load, then why should the insurance premium allotment complaints for Ulips be brought under the service taxation net?" he adds.

FMC for Ulips changes among insurance companies and also depends on the monetary monetary monetary monetary fund chosen (debt fund, equity fund, balanced fund) by the policyholder. FMC on Ulips are normally in the scope of 0.8 per cent to 2 per cent.